AP – Television monitors on display at Best Buy in Mountain View, Calif., Monday, Dec. 15, 2008. Best Buy … MINNEAPOLIS – Best Buy Co. Inc. , the nation's biggest consumer electronics retailer, said Tuesday that its third-quarter profit sank 77 percent as it faced dramatic changes in consumer spending.
The company also said it will offer massive buyout packages to about 4,000 employees at its headquarters while slashing spending in a bid to cut costs, news that the sent the retailer's stock soaring.
Executives called the past three months the "most challenging consumer environment" in the retailer's history.
"We believe that there has been a dramatic and potentially long-lasting change in consumer behavior as people adjust to the new realities of the marketplace," Chief Executive Brad Anderson said in a statement. "We also believe that customers will continue to reward those retailers who understand their needs and desires, and offer relevant solutions at fair prices. Yet we clearly recognize that these changes require us to make significant adjustments."
Richfield, Minn.-based Best Buy said it will offer enhanced buyout packages to nearly all its corporate employees while cutting capital spending by 50 percent in 2009. The chain also plans to open "significantly" fewer stores in the U.S., Canada and China and said it may have to lay workers off depending on how many employees accept the buyout offer. The company had about 150,000 full-time, part-time and seasonal workers as of April, according to a regulatory filing.
"We need to prepare our organization to operate in a wide range of potential macroeconomic scenarios in the coming year," Anderson said. "We believe our broad, voluntary program helps prepare us for the unpredictable year ahead while reflecting our company values and respect for our people."
Tuesday's news comes about a month after Best Buy's biggest rival, Circuit City Stores Inc., filed for Chapter 11 bankruptcy protection, under pressure from vendors and consumers who aren't spending.
Best Buy's third-quarter profit skidded to $52 million, or 13 cents per share, in the three months ending Nov. 29. That's down from $228 million, or 53 cents per share, during the same period last year.
The earnings were boosted by strong Thanksgiving weekend sales, which helped Best Buy post results well ahead of the 24 cents per share analysts polled by Thomson Reuters expected.
Revenue climbed 16 percent to $11.5 billion, from $9.93 billion last year. Analysts expected revenue of $11.09 billion.
Same-store sales, or sales in stores open at least 14 months, fell 5.3 percent during the quarter. Same-store sales are considered a key indicator of a retailer's health because they measure sales at existing stores rather than newly opened ones.
"(Best Buy) may be a bellwether here," Stifel Nicolaus & Co. analyst David Schick told investors in a research note Tuesday. "We want to hear retailers talk about the consumer slowdown in a historic sense and match the slowdown with historic changes to the model."
But he added some of his concerns were alleviated by the company's "bold management moves" and weak competitors.
Also Tuesday, Best Buy reiterated its full-year guidance for earnings of $2.30 to $2.90 per share, excluding the investment charge, and expects same-store sales will fall 1 percent to 5 percent for the year. Analysts expect earnings of $2.51 per share.
Best Buy shares climbed $3.60, or 15.3 percent, to $27.07 in midday trading Tuesday.